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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along

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Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day

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Speaker 1: for insight from the best an economics, geopolitics, finance and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal and the Bloomberg Business app. Tourston slockholding

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Speaker 1: court at Deutsche Bank for years. He's a chief economist

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Speaker 1: at a Rising Apollo. Torston, thank you so much for

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Speaker 1: joining this morning. What's the operative theory right now for

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Speaker 1: a FED Let's say they're restrictive, some would say they're

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Speaker 1: super restrictive. Underlying that is a need to turn at

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Speaker 1: some point. What's the theory they have right now to

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Speaker 1: get ready to turn out quarters up meeting zone.

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Speaker 2: Well, that's a very good question, and I think the

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Speaker 2: answer to that is it's all about the dual mandate.

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Speaker 2: That for a long long time they've been focusing on

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Speaker 2: the inflation part of the dual mandate because it was

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Speaker 2: very clear that inflation was and still is at levels

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Speaker 2: that are too high for their comfort. I do think

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Speaker 2: that the narrative, both for the FED and also for

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Speaker 2: markets will now begin to change towards growth or towards employment.

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Speaker 2: In other words, what are the reasons why we're still

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Speaker 2: having this strong economy? And if the lack of effects

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Speaker 2: of monetary policy that they have spoken about for so long,

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Speaker 2: where it takes twelve to eighteen months to slow the

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Speaker 2: economy down, well, the lacked effects of Fed hikes will

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Speaker 2: eventually begin to slow things down. We're already seeing that

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Speaker 2: across all indicators, and we should expect that also to

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Speaker 2: happen over the coming quarters.

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Speaker 3: Son, how do you explain jobless claims coming in lower

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Speaker 3: than expected? How do you explain other metrics of wage

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Speaker 3: growth continuing to remain robust.

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Speaker 2: Yeah, so, in that sense, there's still a very strong

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Speaker 2: label market. Everagej ob earning last Friday went up, and

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Speaker 2: this label market, obviously in jobless claims still looking relatively tight,

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Speaker 2: would certainly also get the Fed to say, well, we

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Speaker 2: still need to hike rate more and still tighter monetary

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Speaker 2: policy is needed.

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Speaker 3: But at this point, if you see companies, whether it's Delta,

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Speaker 3: whether it's PEPSI, whether it's a number of the others

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Speaker 3: that are seeing profit margins expand with their input prices

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Speaker 3: coming down more than what they can charge consumers.

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Speaker 4: You have people who are employed.

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Speaker 3: At what point does it become a virtuous cycle that

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Speaker 3: offsets any pain of those rate hikes.

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Speaker 2: Well, and also at this point, as you also talk

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Speaker 2: a lot about the housing market is beginning to recover,

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Speaker 2: traffic or prospective buyers is going up. You look, existing

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Speaker 2: home sales is going up, New home sales is going up.

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Speaker 2: Home build their confidence, home bio confidence. Even the number

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Speaker 2: of office receiveder sole property is also going up. That

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Speaker 2: bidding walls are coming back. And remember housing makes up

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Speaker 2: forty percent of the CPI. So the risk is if

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Speaker 2: we start with core CPI, which was at four point eight,

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Speaker 2: that's still just way too high for their comfort. So

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Speaker 2: that's why for them it's still the hawkish communication saying

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Speaker 2: both on the inflation side and on the growth side,

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Speaker 2: on the employment side of the dual mandate, we just

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Speaker 2: got to keep making sure that we don't have an

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Speaker 2: economy that continues to look overheated on a number of

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Speaker 2: different fronts.

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Speaker 1: I want to look at the larger of the miss

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Speaker 1: standpoint that America is fully employed. This is in theegeis

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Speaker 1: off the jobs report five six, eight days ago, and

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Speaker 1: this is the employment as compared to population ratio of

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Speaker 1: prime age people in America. It is a full recovery

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Speaker 1: mode and particularly back on literally back on regression, back

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Speaker 1: on trend. That's got to be the most optimistic chart

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Speaker 1: for politicians in America.

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Speaker 2: Well, and that's why the debate for the FIT is probably, well,

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Speaker 2: do we need to solten the label market? As you know,

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Speaker 2: different FMC members are putting different weight on this. Do

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Speaker 2: we need to solvet in the label market to get

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Speaker 2: inflation to come down? I mean, let's not forget inflation. Today,

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Speaker 2: Core CPI was at four point eight. We are nowhere

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Speaker 2: near the two percent target where they wanted to be.

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Speaker 2: And with that backdrop, of course, they will continue to

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Speaker 2: say we just got to keep going because we still

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Speaker 2: have way too high inflation.

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Speaker 3: One less understood aspect of FED policy is not just

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Speaker 3: what happens when you raise rates to the pace they have,

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Speaker 3: but what happens when you hold them for a prolonged

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Speaker 3: period of time, especially as companies have already refinanced and

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Speaker 3: aren't really capturing a lot of the higher yields that

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Speaker 3: are being charged out there by investors.

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Speaker 4: When does that bite? When does that scenario change?

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Speaker 5: Yeah?

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Speaker 2: No, The very important answer to that is that this

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Speaker 2: is exactly the crystallization of the transmission making. This of

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Speaker 2: monetary policy. Where is it showing up? And the answer

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Speaker 2: to your question leads, that's showing up in a number

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Speaker 2: of different places. You are beginning to see the linguity

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Speaker 2: rates for auto loans going up, the linguagy rates for

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Speaker 2: credit cards are going up. You beginning to see the

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Speaker 2: default rates for corporates on high yield going up. Loans

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Speaker 2: also see default rates going up, so across the board,

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Speaker 2: both for consumers and for corporates. The conclusion is that

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Speaker 2: default cycle has started, so it is biting. It's just

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Speaker 2: not showing up at the macro level quite yet. But

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Speaker 2: it's very clear that the effects of monetary policy are

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Speaker 2: showing up in the background and it will eventually begin

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Speaker 2: to slow things down.

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Speaker 1: Lisa, this employment to population primate, this is the core

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Speaker 1: of America. The success of a decade twenty ten, off

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Speaker 1: of the terrible financial crisis, moving to seventy five percent employed,

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Speaker 1: up to eighty percent employed. Granted, there's a lot of

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Speaker 1: people not in that number that are unemployed. A pandemic

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Speaker 1: that was worse than the financial crisis. We've rebounded back

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Speaker 1: and we burst through where we were in the autumn

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Speaker 1: of two thousand and nineteen. It's a fully employed America

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Speaker 1: of the people that are employable.

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Speaker 3: Well, and this becomes sort of the question what could

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Speaker 3: change that scenario, which is why we're wondering about transmission mechanism.

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Speaker 3: If you don't see that, you're saying, we do see

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Speaker 3: a default cycle that is starting. However, at the same time,

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Speaker 3: some of these companies were sort of destined to default

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Speaker 3: to while back and are now just sort of being

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Speaker 3: washed out.

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Speaker 4: What do you see this cycle looking like eventually? When

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Speaker 4: do you start to see some of those lag effects

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Speaker 4: taking effect.

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Speaker 2: Well, one way to do that is on my Bloomberg

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Speaker 2: scream to type shok and try to give a shock

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Speaker 2: to the fitfunds rate five percent is points higher. What

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Speaker 2: is the profile for GDP over the next several years

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Speaker 2: if you do raise the Fed funds rate by five

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Speaker 2: percent is points in a very short period of time.

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Speaker 2: And the answer is that it takes three, four or

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Speaker 2: five quarters before you get the maximum impact. So in

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Speaker 2: other ways, let's talk about this as what happened to

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Speaker 2: the lack of effects of monetary policy. Inflation is coming down,

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Speaker 2: but what about growth? And I think the narrative will

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Speaker 2: now shift away from saying inflation looks better, the trend

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Speaker 2: is better. We're still at a high level. But what

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Speaker 2: about this idea that when we step on the brakes

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Speaker 2: you will see monetary posts you're having a negative impact

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Speaker 2: on consumption, on capic spinning. And that's exactly what we're seeing.

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Speaker 2: You see same store retail sales is coming down. You're

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Speaker 2: seeing cape spending coming down. The fault rates are going up,

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Speaker 2: the linguity rates are going up. It is beginning to bite,

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Speaker 2: as you're saying, Lisa in the background. So we will

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Speaker 2: and should still expect to see over the next slevel

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Speaker 2: quarters a continued slow down. This is what the Fed wants.

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Speaker 2: This is the whole reason why they're raising interest rates

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Speaker 2: to get the economy to continue to slow down.

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Speaker 1: That's worked out well. You know, I got fourteen ways

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Speaker 1: to go here in our two hour conversation, but I've

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Speaker 1: got to drive towards the arch overlay here, which you

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Speaker 1: say about it, Apollo, And I'm going to go to

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Speaker 1: Paul Romer, the great growth economists, the great economists thinking

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Speaker 1: about technology. Are we just fooling ourselves in that there's

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Speaker 1: a technology technological overlay where the halves of all incomes

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Speaker 1: are benefiting from technology, and there's a whole other loudite

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Speaker 1: part of society that's not participating.

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Speaker 2: Well, at least on the AI front. It's certainly something

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Speaker 2: that's small happening in financial markets than out there, and

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Speaker 2: they're really con what.

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Speaker 1: About out in the real economy. I'm thinking about your

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Speaker 1: Germany flat on its back right now.

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Speaker 2: No, well, the bottom line is still that the Europeans definitely,

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Speaker 2: of course experiencing some hitwinds as a result of the

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Speaker 2: AI boom that we're seeing in the US at the moment. Unfortunately,

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Speaker 2: we're not quite seeing that in the productivity data as

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Speaker 2: we speak, but you're right, over time, this will certainly

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Speaker 2: be something that helps. I don't think this matters so

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Speaker 2: much for the business side in the NIEM and for

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Speaker 2: the FAT, but I do think that it does matter

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Speaker 2: for discussions about the potential growth rate of the US economy.

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Speaker 3: It's quickly here you were talking about how as inflation

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Speaker 3: comes down, that's when you start to see profits come

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Speaker 3: revenues come down. Is this sort of the unspoken reality

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Speaker 3: that actually inflation was positive for companies increase their revenues

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Speaker 3: and allowed the growth.

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Speaker 6: Oh.

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Speaker 2: Absolutely, this is spot on, because inflation is not only

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Speaker 2: about output prices, it's also input prices. In other words,

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Speaker 2: things that are sold when you have high inflation could

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Speaker 2: have wider profit margins. But the cost of production we're

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Speaker 2: also very elevated. And if all that comes down is

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Speaker 2: not only helping in terms of lower cost of production,

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Speaker 2: it's also going to squeeze margins.

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Speaker 3: I keep thinking Tom about what Torristen Slock just said,

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Speaker 3: and we heard a similar kind of discussion from Tony

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Speaker 3: Dwyer that when revenues come in, that is when it

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Speaker 3: is a game changer.

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Speaker 4: And perhaps one of the.

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Speaker 3: Most unstated, understated and also misunderstood aspects of inflation was

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Speaker 3: how much boosted companies revenues? How much boosted and all

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Speaker 3: of a sudden, when you start to see inflation come

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Speaker 3: in and revenues don't increase the same kind of levels,

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Speaker 3: then how much do you see a resetting back to

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Speaker 3: a normal type of assam Sure you impute.

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Speaker 1: The inflation in the system. The giant Phil Couray value

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Speaker 1: investor pioneer in New York lived to be one hundred

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Speaker 1: and four whatever. Nominal GDP is the great misguest right now,

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Speaker 1: isn't it?

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Speaker 2: Absolutely? And what's really critical about this is that equities

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Speaker 2: trade on nominal data. Bonds and rates traits on real data.

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Speaker 1: Stop the show, guys, frame that give that to every

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Speaker 1: show this week, say it again. Nominal GDP matters.

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Speaker 2: Because what matters phenomenal earnings in this in P five hundred,

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Speaker 2: which has grown six percent annually for the last forty years,

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Speaker 2: is all about nominal variables and normal GDP, nominal revenue.

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Speaker 2: Everything is mentioned in normal terms. So when facing comes down,

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Speaker 2: you should also expect the bond market to look at

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Speaker 2: that and say, well, that's not for us. That's what's

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Speaker 2: happening in equities, whereas bond markets will say it's all

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Speaker 2: about what's happening on the real side, meaning on the

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Speaker 2: volume on the unit side.

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Speaker 1: Turston, thank you so much, greatly, greatly appreciate this today

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Speaker 1: with Apollo as well, the hallmark of the show has

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Speaker 1: always been to keep score. We take careful care with

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Speaker 1: those that get it wrong. We really pay attention to

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Speaker 1: those that get it right. There is no surprise to

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Speaker 1: anyone over the decades to know, with a longer timeframe,

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Speaker 1: a longer perspective, the gentleman from Yale once again has

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Speaker 1: nailed it. Edward Yard Danny joines this, President of your

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Speaker 1: Danny Research. What were you thinking, not the third week

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Speaker 1: of October the low, but let me say, the first

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Speaker 1: week of October, the hysteria there, the gloom. How are

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Speaker 1: you framing out the optimism that got this realized?

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Speaker 7: I watch sentiment in the equity market very carefully, and

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Speaker 7: there's something called the investors Intelligence old Bear ratio, And

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Speaker 7: in mid October it got down to zero point six

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Speaker 7: to zero, which is as depressed as it was in

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Speaker 7: March of twenty two thousand and nine. And I was thinking,

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Speaker 7: surely things aren't anywhere near as bad as they were

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Speaker 7: back then. And I've also been in of the view

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Speaker 7: that we're not going to have a economy wide recession.

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Speaker 7: I would have the view that we've been in a

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Speaker 7: rolling recession. So it all kind of came together for

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Speaker 7: me by the end of October, and I said, you know,

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Speaker 7: I think October twelfth was low.

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Speaker 8: Do you think we can carry on beating up low expectations?

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Speaker 7: Well, the problem now is that there's too many bulls.

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Speaker 7: You know, we've nothing to fear, but fearless investors, we

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Speaker 7: don't really have enough. I mean, the technical sentiment picture

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Speaker 7: isn't that that good because there just aren't enough pessimists

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Speaker 7: out there. But the problem is, the fundamentals are really good.

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Speaker 5: You know.

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Speaker 7: I think everybody's swung around from worrying about an economy

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Speaker 7: wide recession to sort of embracing a disinflationary soft landing.

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Speaker 7: And you know, we'll see what happens with the PPI,

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Speaker 7: but you know, we could have a trifecta of really

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Speaker 7: great numbers. Expected inflation on Monday was lower than the next,

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Speaker 7: and the CPI was great, and I think the PPI

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Speaker 7: is going to be very good as well. So disinflation

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Speaker 7: is here.

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Speaker 8: Well bank and ex validates some of the optimism I think.

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Speaker 7: So I think we are going to see a continuation,

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Speaker 7: as you've pointed out, of an increase in loan loss reserves.

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Speaker 7: The Fed actually puts out a weekly series on that

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Speaker 7: for large banks and small banks. For the large banks

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Speaker 7: is actually up sixteen percent on a year over year basis,

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Speaker 7: So there could be some disappointment on earnings from that perspective,

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Speaker 7: but much depends on the economy. If people embrace the

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Speaker 7: view that the economy continue to grow, then credit quality

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Speaker 7: is not going to be that big an issue and

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Speaker 7: they may be able to within a few quarters just

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Speaker 7: to reduce those loan loss reserves, and suddenly the profits

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Speaker 7: are looking pretty good again.

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Speaker 3: Months ago, you were talking about forty five hundred. How

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Speaker 3: high have you gone in terms of s and p FO.

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Speaker 7: Yeah, I've actually I'm going to raise you by one hundred.

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Speaker 7: I've been talking about forty six hundred. But what's the difference.

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Speaker 7: You know, it's been a bull market since October twelfth,

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Speaker 7: and the problem with forty six hundred is roughly close

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Speaker 7: to that. That's my year end target, and it looked

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Speaker 7: delusional earlier this year, I have to admit, but it's

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Speaker 7: worked out awfully well. We're only, what you know, one

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Speaker 7: hundred and fifty points away from them, maybe less than that.

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Speaker 7: So let's get to forty six hundred and then ask

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Speaker 7: me again. But I'll probably raise it to forty eight hundred,

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Speaker 7: depending on how things are shaping up.

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Speaker 3: How profit margins fit into this. Because we were speaking

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Speaker 3: earlier about the likelihood where we could see a shifting

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Speaker 3: narrative there, especially if revenues come in the way that

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Speaker 3: Tony Dwyer was talking about, do you see things differently?

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Speaker 7: Well, we have had a earnings recession, a very mild one.

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Speaker 7: It looks like earnings are going to be down about

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Speaker 7: eight percent on a year over year basis during the

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Speaker 7: second quarter, and that should be the worst of it,

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Speaker 7: and then we start to progressively see better comparisons than

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Speaker 7: a positive comparison by the fourth quarter. Interestingly, this earnings

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Speaker 7: recession hasn't been attributable to revenues. Revenues for us P

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Speaker 7: five hundred are at an all time record high, so clearly

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Speaker 7: it's been the profit margin. So the profit margin has

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Speaker 7: been getting squeezed for the past year or so. But

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Speaker 7: I see signs in weekly data that we monitor, looking

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Speaker 7: at forward earnings and forward revenues, that suggests that analysts

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Speaker 7: are seeing signs that revenues are that profit margins are bottoming.

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Speaker 1: I look at your Denny at the past here, and

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Speaker 1: it's so easy to go back and do some analog

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Speaker 1: with ten years ago or forty years ago. The fact is,

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Speaker 1: when you know, we first knew your Denny at CJ. Lawrence,

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Speaker 1: you were with lu Rukaiser talking about the public and

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Speaker 1: individual stocks. Now we are overwhelmed with index fund investment

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Speaker 1: and ETF investment. How does that change the dynamics of

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Speaker 1: the market, optimistically or negatively given these new instruments.

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Speaker 7: Well, it's very frustrating for individual investors and certainly for

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Speaker 7: institutional investors that we're taught that diversification is an important

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Speaker 7: aspect of managing a portfolio, and suddenly we have the

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Speaker 7: megacap eight stocks that accounts for twenty seven percent of

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Speaker 7: the S and P five hundred. So you know, if

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Speaker 7: you don't have twenty seven percent of your portfolio those stocks,

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Speaker 7: you've been underperforming. So it's a lot of pressure to

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Speaker 7: you know, play that game, to you know, continue to

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Speaker 7: buy into that group of stocks. But it is what

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Speaker 7: it is. These are great companies and they're I think

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Speaker 7: it all really started, you know, with when Facebook realized

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Speaker 7: that the stock was getting the hammered. They said, well,

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Speaker 7: we can show everybody just how much we really make.

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Speaker 7: All we got to do is cut our expenses and

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Speaker 7: that's easy enough, and that's what a lot of them did.

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Speaker 7: And then the AI think, so.

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Speaker 1: What's the theme for twelve ands forward? What's the next

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Speaker 1: theme for corporate America to perform?

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Speaker 7: Well, my theme is I tend to focus on longer

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Speaker 7: term themes. My theme is the Roaring twenty twenties, which

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Speaker 7: again looked quite delusional over the past few years. But

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Speaker 7: the decade isn't over and there's still time for it

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Speaker 7: to run, and I think it. I think technological innovation

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Speaker 7: is going to make a big difference.

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Speaker 1: Johnny, there's the pandemic of nineteen eighteen, nineteen nineteen, yea

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Speaker 1: boom right into the roaring.

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Speaker 8: You coined the term bond vigilantes. Can you offer us

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Speaker 8: your analysis on the bond market right now Treasury specifically.

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Speaker 7: Well, it's interesting how well the bond market's been doing

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Speaker 7: in an environment where the FED has been raising short

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Speaker 7: term raise quite aggressively, and in an environment where we

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Speaker 7: have quantitative tightening where they're actually letting their securities mature.

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Speaker 7: There's clearly been a tremendous demand for bonds. I think

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Speaker 7: a lot of it is there's a tremendous funel liquidity

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Speaker 7: out there still. I know people have focused on M

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Speaker 7: two and have had a dumish scenario because M two

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Speaker 7: has been declining, but two is still about a trillion

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Speaker 7: dollars above its pre pandemic trend line. Demand deposits are

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Speaker 7: also something more than that. Actually, M two has never

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Speaker 7: been more liquid.

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Speaker 8: Is there an obvious relationship at the moment between how

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Speaker 8: treasuries performed and what equities have been doing?

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Speaker 7: Yeah?

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Speaker 8: What is it?

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Speaker 7: Well? I think you know, last year they were both

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Speaker 7: doing horribly. It was something we hadn't seen in quite

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Speaker 7: some time. Now, I think both ascid classes have done

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Speaker 7: quite well. I mean, you know, the bonds have at

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Speaker 7: least earned you the coupon. They haven't really hurt you.

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Speaker 7: I'm looking at the bonds to I think the bonds

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Speaker 7: peaked at four point two percent on October twenty fourth.

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Speaker 7: I believe last year a lot of good things happened

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Speaker 7: in October of last year, and so I think the

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Speaker 7: bonds are okay. And I think stocks still have upside,

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Speaker 7: especially in the laggers like financials and industrials.

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Speaker 8: So you think even if the FED sticks AT's say

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Speaker 8: five point fifty and just holds it, that this equity

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Speaker 8: market it's okay.

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Speaker 7: Well, you know, the fans have been kind of telling

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Speaker 7: different stories. When an individual FED officials have been talking,

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Speaker 7: they've been awfully hawkish. But when they get together and

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Speaker 7: put together there's summary of economic projections. They've been very reasonable.

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Speaker 7: They said, look, we want to get it up to

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Speaker 7: a restrictive level. I think they're there. The banking crisis

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Speaker 7: I think demonstrated that they're there. It's restrictive enough, and

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Speaker 7: I think they want to keep it there. I never

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Speaker 7: was in that camp that believe that the FED was

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Speaker 7: going to lower industry, so I took them at their word.

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Speaker 7: I think they could declare mission accomplished, except that's the jinks.

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Speaker 7: So it's better that they don't do that and that

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Speaker 7: they continue to talk about Well, I hope they don't.

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Speaker 7: You know, victory laps are jinx is. You know, there

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Speaker 7: you go. I've had a few of those in my career,

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Speaker 7: only to be wrong that almost the next time.

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Speaker 1: That's our theme. This morning, when you weren't here, they

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Speaker 1: were busting my jobs about victory labs.

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Speaker 8: Well, we won't call this a victory lap for you,

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Speaker 8: but certainly so fast. Don't do that so fast, so

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Speaker 8: good that it's going to see you, Thank you, thank you, sir.

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Speaker 8: At any of any research.

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Speaker 1: My experience is people listen when Alan Ruskins speaks. He

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Speaker 1: has the privilege of working with David folkerts Landau and

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Speaker 1: putting together Holistic Global Research for Deutsche Bank. They're chief

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Speaker 1: and national strategist. Joins us on what I'm calling from

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Speaker 1: Steve England or a game changer Thursday. How much did

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Speaker 1: the game change yesterday, Alan Ruskin? With disinflation codified in

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Speaker 1: the United.

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Speaker 6: States, whether disinflation was codified, but things did certainly change

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Speaker 6: substantially in the FX market. We've been entrenched in this

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Speaker 6: incredibly narrow range really.

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Speaker 9: For most of this year.

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Speaker 6: Euro dollar in particular, it's seemingly capped at one ten nineteen.

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Speaker 6: I think once we broke that level, it's opened the

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Speaker 6: floodgates in a way, and the dollars on the defensive

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Speaker 6: pretty much against all currency. So it's codified a change,

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Speaker 6: as it were in the FX market, Tom.

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Speaker 1: I looked at a very fancy regression of the blended

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Speaker 1: dxynx back twenty years and certainly off the Great Financial

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Speaker 1: event of two thousand and eight. I can look for

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Speaker 1: further eight percent dollar weakness. Do you see that kind

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Speaker 1: of scale to go further with dollar weakness?

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Speaker 6: Tom I, do you know when you look at these

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Speaker 6: big dollar cycles, you know, historically we used to have,

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Speaker 6: you know, sort of six or seven years of updollar

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Speaker 6: uptick and then nine you know, maybe even ten years

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Speaker 6: of dollar famine.

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Speaker 9: As it were.

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Speaker 6: This last cycle got broken up a little bit because

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Speaker 6: of COVID in particular, and we had a bit of

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Speaker 6: a longer uptick. But the downticks, the down cycles are

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Speaker 6: typically in the order of about twenty five percent down

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Speaker 6: on the trade weighted index. So we've probably gone maybe

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Speaker 6: a quarter of the way through a typical down cycle.

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Speaker 6: So even if we have, you know, half a cycle,

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Speaker 6: we could certainly get that eight percent that you suggest,

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Speaker 6: and it could be substantially more than that.

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Speaker 4: When is fundamental growth matter?

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Speaker 3: Again, Alan, I mean, we're talking about the raid hiking cycle,

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Speaker 3: we're talking about inflation, but it also is a question

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Speaker 3: of fundamental economic strength that the US seems to be displaying,

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Speaker 3: even as Europe faces a lot of headway and potentially

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Speaker 3: more rate hikes into weakness.

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Speaker 6: Yeah, you know, the way I look at it, Lisa,

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Speaker 6: is that there's a continuum where you think in terms

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Speaker 6: of strong growth, a sort of no landing situation, then

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Speaker 6: a soft landing story where you could even have a

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Speaker 6: recession but it's a shallow recession, or you could have

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Speaker 6: you know, really amounts to a hard landing where the

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Speaker 6: FED pushes to the point where something really breaks at

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Speaker 6: the moment. In that continuum, you've shifted towards more of

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Speaker 6: that sort of soft landing arena with the FED pivoting

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Speaker 6: in twenty twenty four. And that's the worst scenario as

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Speaker 6: far as the dollar is concerned, because risk tradees are okay,

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Speaker 6: and bonds in general like it, equities like it, but

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Speaker 6: the dollar really doesn't like that scenario. So dollar tends

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Speaker 6: to do poorly against G ten because of the fat pivot,

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Speaker 6: and it doesn't do well against EM because risk usually

437
00:21:54,800 --> 00:21:56,000
Speaker 6: is trading okay as well.

438
00:21:56,280 --> 00:21:59,000
Speaker 3: And to that point, allan I'm thinking about typical cycles

439
00:21:59,000 --> 00:22:01,960
Speaker 3: from the dollar does worse. Usually that is a risk

440
00:22:02,040 --> 00:22:05,000
Speaker 3: on scenario, risk on in emerging markets, risk on around

441
00:22:05,040 --> 00:22:07,960
Speaker 3: the world, a sense of growth. How does that dovetail

442
00:22:08,160 --> 00:22:11,320
Speaker 3: into the potential weakness and greater weakness in other non

443
00:22:11,480 --> 00:22:14,320
Speaker 3: US areas at a time when the US is actually

444
00:22:14,400 --> 00:22:17,880
Speaker 3: shockingly resilient and showing a much faster pace of disinflation.

445
00:22:18,920 --> 00:22:21,919
Speaker 6: Yeah, you know, I think we are certainly looking at

446
00:22:21,960 --> 00:22:25,359
Speaker 6: the US being one of the slowest major economies in

447
00:22:25,440 --> 00:22:28,800
Speaker 6: terms of GDP growth for twenty twenty four. The UK

448
00:22:28,880 --> 00:22:32,000
Speaker 6: will probably utu US on a GDP Q four Q

449
00:22:32,119 --> 00:22:35,439
Speaker 6: four basis for twenty twenty four, but the US is

450
00:22:35,720 --> 00:22:39,159
Speaker 6: pretty much up there. So we're not seeing and do

451
00:22:39,280 --> 00:22:43,040
Speaker 6: not expect that other economies will quite match the degree

452
00:22:43,080 --> 00:22:46,040
Speaker 6: of slowing that we anticipate for the first half of

453
00:22:46,080 --> 00:22:46,920
Speaker 6: twenty twenty four.

454
00:22:47,119 --> 00:22:49,200
Speaker 9: Obviously that doesn't materialize.

455
00:22:49,240 --> 00:22:50,720
Speaker 6: That gives the dollar a little bit more of a

456
00:22:50,720 --> 00:22:53,040
Speaker 6: boost because you're not going to get the rate cuts

457
00:22:53,119 --> 00:22:56,360
Speaker 6: that we're expecting for twenty twenty four all.

458
00:22:56,400 --> 00:22:58,520
Speaker 1: And where's a tradable pair here. I mean, it's one

459
00:22:58,520 --> 00:23:01,320
Speaker 1: thing to say, you know, Euro higher, but where's the

460
00:23:01,359 --> 00:23:04,080
Speaker 1: opportunity here, the big figure trade that you would suggest

461
00:23:04,400 --> 00:23:05,640
Speaker 1: for Deutsche Bank clients.

462
00:23:06,520 --> 00:23:08,280
Speaker 6: Yeah, you know, I think if you want, you know,

463
00:23:08,480 --> 00:23:12,080
Speaker 6: sort of a soup up euro trade, then you know.

464
00:23:12,119 --> 00:23:15,000
Speaker 9: I like the Norwegian chron particularly.

465
00:23:15,160 --> 00:23:19,639
Speaker 6: I think it's grossly undervalued by every metric that we

466
00:23:19,680 --> 00:23:23,200
Speaker 6: look at, PPP, dB fear. I can you know, throw

467
00:23:23,240 --> 00:23:25,560
Speaker 6: our acronyms global and they will tell you the same

468
00:23:25,680 --> 00:23:30,199
Speaker 6: story that the Norwegian Krona is grossly undervalue. So you know,

469
00:23:30,359 --> 00:23:33,399
Speaker 6: in a world where you know, sort of high betas

470
00:23:33,440 --> 00:23:36,240
Speaker 6: are trading, okay, the Norwegian Krona has got a long

471
00:23:36,280 --> 00:23:36,919
Speaker 6: way to ghost.

472
00:23:37,359 --> 00:23:40,320
Speaker 1: I mean, you got Norway. There is that an oil

473
00:23:40,359 --> 00:23:43,360
Speaker 1: play where it's just simply a linked into a Deutsche

474
00:23:43,400 --> 00:23:46,639
Speaker 1: Bank recovery in the price of oil given better times,

475
00:23:46,680 --> 00:23:48,199
Speaker 1: given better global demand.

476
00:23:49,000 --> 00:23:50,960
Speaker 6: No, I think it's a it's more of a high

477
00:23:50,960 --> 00:23:52,800
Speaker 6: beta euro trade.

478
00:23:52,840 --> 00:23:53,119
Speaker 9: Really.

479
00:23:53,920 --> 00:23:56,160
Speaker 6: It's got drawn down and pulled down a little bit

480
00:23:56,200 --> 00:23:58,800
Speaker 6: by the Swedish Prona, which is you know, had its

481
00:23:58,880 --> 00:24:03,639
Speaker 6: own set of problem that don't necessarily relate closely to Norway.

482
00:24:03,760 --> 00:24:07,639
Speaker 6: But you know it's getting tagged along. But no, I know,

483
00:24:07,720 --> 00:24:11,240
Speaker 6: I see this really as a europlay, but with a

484
00:24:11,320 --> 00:24:14,359
Speaker 6: high beta currency that's extremely undervalued.

485
00:24:14,440 --> 00:24:17,000
Speaker 1: Ell and I featured at the top today the absolute

486
00:24:17,080 --> 00:24:22,400
Speaker 1: shock of a peso comfortable twenty one twenty and imagine

487
00:24:22,720 --> 00:24:29,119
Speaker 1: Mexican peso strengthening through seventeen. I didn't frame that. How

488
00:24:29,440 --> 00:24:33,480
Speaker 1: how can that happen? How does Mexico improve from here

489
00:24:33,600 --> 00:24:35,439
Speaker 1: to fifteen or a fourteen level?

490
00:24:36,640 --> 00:24:39,440
Speaker 6: Yeah, and I think people have been playing the Mexico

491
00:24:39,520 --> 00:24:41,760
Speaker 6: trade now for a couple of years, and you just

492
00:24:41,760 --> 00:24:43,480
Speaker 6: saw a little bit of a squeeze because you know

493
00:24:43,520 --> 00:24:46,240
Speaker 6: a lot of people were long Mexico versus the yen

494
00:24:46,640 --> 00:24:49,120
Speaker 6: and the yen side of things squeeze quite badly.

495
00:24:49,920 --> 00:24:50,680
Speaker 9: Look, I think the.

496
00:24:50,760 --> 00:24:54,840
Speaker 6: Mexican fundamentals have been remarkably resilient for you know, a

497
00:24:54,880 --> 00:24:58,119
Speaker 6: couple of reasons. One, it's under bank as such, and

498
00:24:58,160 --> 00:25:00,600
Speaker 6: there's very little leverage in the system, so that when

499
00:25:00,680 --> 00:25:05,000
Speaker 6: rates go up, the Mexican economy does prove pretty resilient.

500
00:25:05,240 --> 00:25:08,080
Speaker 9: And then I think there's a structural story and a structural.

501
00:25:07,640 --> 00:25:12,520
Speaker 6: Play whereby people are relocating close to shoring, as it were,

502
00:25:12,560 --> 00:25:16,040
Speaker 6: to the US and away from Asia and China in particular.

503
00:25:16,160 --> 00:25:19,159
Speaker 6: So I think those elements are still there. The data

504
00:25:19,200 --> 00:25:23,400
Speaker 6: still looks okay. When the trade accounts start to deteriorate,

505
00:25:23,720 --> 00:25:26,920
Speaker 6: we know and we'll get the much strongest signal that

506
00:25:27,560 --> 00:25:31,760
Speaker 6: the Mexican peso is more significantly overvalued. At the moment,

507
00:25:31,800 --> 00:25:34,280
Speaker 6: it looks overvalued on a real exchange right basis, but

508
00:25:34,359 --> 00:25:36,320
Speaker 6: we don't really see it in the trade data.

509
00:25:36,560 --> 00:25:38,480
Speaker 3: We're speaking with Alan Ruskin of Deutsche Bank. At a

510
00:25:38,520 --> 00:25:41,200
Speaker 3: time when the dollar is the strongest going back more

511
00:25:41,280 --> 00:25:43,399
Speaker 3: than a year, you could see the euro ascendant and

512
00:25:43,480 --> 00:25:46,880
Speaker 3: the possibility, as Allen projects, out of one twenty euro.

513
00:25:46,960 --> 00:25:49,320
Speaker 3: Good luck to all of those European vacations that everyone's

514
00:25:49,320 --> 00:25:50,360
Speaker 3: trying to clock in right now.

515
00:25:50,400 --> 00:25:51,520
Speaker 4: I'm wondering out from.

516
00:25:51,320 --> 00:25:54,000
Speaker 3: Your perspective, how much of a boost this will give

517
00:25:54,119 --> 00:25:58,080
Speaker 3: US businesses, international businesses that have suffered with a strong

518
00:25:58,160 --> 00:26:01,840
Speaker 3: dollar in terms of their sales overseas. Does this in

519
00:26:01,880 --> 00:26:05,000
Speaker 3: some ways give a headwind to US growth down the line,

520
00:26:05,440 --> 00:26:07,720
Speaker 3: in a sort of on the margins level.

521
00:26:08,680 --> 00:26:11,320
Speaker 9: Yeah, I think Lisa, you hit the he used the

522
00:26:11,359 --> 00:26:12,760
Speaker 9: right word. At the margins.

523
00:26:12,760 --> 00:26:17,400
Speaker 6: This is going to be helpful for US corporations, helpful

524
00:26:17,400 --> 00:26:19,280
Speaker 6: for exports, helpful for the.

525
00:26:21,440 --> 00:26:22,640
Speaker 9: Equity market as well.

526
00:26:22,880 --> 00:26:26,640
Speaker 6: So you know, we've got some constructive elements there. Experts

527
00:26:26,680 --> 00:26:28,679
Speaker 6: have held up quite well in the grand scheme of

528
00:26:28,720 --> 00:26:32,320
Speaker 6: things in the US a relative to other countries, so

529
00:26:32,640 --> 00:26:33,480
Speaker 6: you know this is going to.

530
00:26:33,480 --> 00:26:34,720
Speaker 9: Be a further boost.

531
00:26:34,800 --> 00:26:38,280
Speaker 6: I think there's some very helpful things happening in US manufacturing.

532
00:26:38,800 --> 00:26:41,359
Speaker 6: The defense industries obviously doing extremely well.

533
00:26:41,560 --> 00:26:43,239
Speaker 9: You've had this relocation.

534
00:26:42,800 --> 00:26:47,679
Speaker 6: In terms of semiconductor plants back to the US. You know,

535
00:26:47,720 --> 00:26:51,840
Speaker 6: you've got some very helpful elements there. So I think

536
00:26:51,880 --> 00:26:55,440
Speaker 6: this is you know, this is all the more good

537
00:26:55,480 --> 00:26:57,959
Speaker 6: news as far as the resilience that you were speaking

538
00:26:57,960 --> 00:26:59,040
Speaker 6: about earlier.

539
00:26:58,920 --> 00:27:01,520
Speaker 8: Six days of dollars against the U right ureret dot

540
00:27:01,560 --> 00:27:04,080
Speaker 8: on one eleven sixty seven and I'm risking at Deutsche

541
00:27:04,119 --> 00:27:05,399
Speaker 8: Bank there on the FX market.

542
00:27:16,040 --> 00:27:18,679
Speaker 1: Erica Njerian joins us in a large cap banks and

543
00:27:18,720 --> 00:27:23,639
Speaker 1: consumer finance expert here at UBS. Erica just a general

544
00:27:23,720 --> 00:27:26,680
Speaker 1: question to begin the discussion, what will you look for

545
00:27:27,640 --> 00:27:32,760
Speaker 1: in the beginning of the press releases tomorrow into Monday

546
00:27:32,840 --> 00:27:36,080
Speaker 1: into Tuesday. What is the theme the tendency you will

547
00:27:36,080 --> 00:27:36,560
Speaker 1: look for?

548
00:27:37,760 --> 00:27:39,960
Speaker 5: So there are really three things that I'm going.

549
00:27:39,840 --> 00:27:40,440
Speaker 4: To look for.

550
00:27:40,520 --> 00:27:44,159
Speaker 5: First, is capital, like it or not. A lot of

551
00:27:44,200 --> 00:27:49,439
Speaker 5: investors are laser focused on capital and how banks are

552
00:27:49,440 --> 00:27:52,960
Speaker 5: building capital, not just because the rules are getting tougher,

553
00:27:53,200 --> 00:27:56,679
Speaker 5: but also because there continues to be uncertainty in the

554
00:27:56,880 --> 00:27:59,399
Speaker 5: economy in terms of the outlook, no matter what the

555
00:27:59,400 --> 00:28:02,080
Speaker 5: Maco print are saying. You know. The second thing I'm

556
00:28:02,080 --> 00:28:05,359
Speaker 5: going to look at is net interest income and how

557
00:28:05,400 --> 00:28:08,600
Speaker 5: deposit costs and deposit growth or trending, although a lot

558
00:28:08,640 --> 00:28:11,560
Speaker 5: of investors are thinking that we are in the late

559
00:28:11,640 --> 00:28:15,119
Speaker 5: innings of that being a catalyst and negative catalysts for

560
00:28:15,200 --> 00:28:17,720
Speaker 5: the stocks. And the third thing I'm going to look

561
00:28:17,760 --> 00:28:22,000
Speaker 5: for is any signs that credit is deteriorating underneath the surface.

562
00:28:22,359 --> 00:28:24,119
Speaker 5: As you know, as the all three of you know,

563
00:28:24,640 --> 00:28:28,960
Speaker 5: the market is very sensitive for any hiccups and commercial real.

564
00:28:28,920 --> 00:28:30,920
Speaker 4: Estate, and so those are really the.

565
00:28:30,720 --> 00:28:33,640
Speaker 5: Top three things I'm going to look for in Friday.

566
00:28:33,760 --> 00:28:36,080
Speaker 1: How do you wait your large cap world with the

567
00:28:36,119 --> 00:28:39,280
Speaker 1: super regionals, the regionals and the svv P like the

568
00:28:39,360 --> 00:28:41,760
Speaker 1: smaller banks that are out there, what's the level of

569
00:28:41,800 --> 00:28:45,120
Speaker 1: importance of the next three or four days versus everything

570
00:28:45,160 --> 00:28:46,640
Speaker 1: else in bank earning season.

571
00:28:48,360 --> 00:28:52,560
Speaker 5: Well, I'll say that it's probably an even more pivotal

572
00:28:52,640 --> 00:28:56,920
Speaker 5: time for the regional banks, particularly the super regional banks

573
00:28:57,160 --> 00:29:00,160
Speaker 5: that are within the scope of the bar speech with

574
00:29:00,200 --> 00:29:04,280
Speaker 5: regards to new regulation. So I think that JP Morgan

575
00:29:04,440 --> 00:29:07,760
Speaker 5: b of a Well City Group, Morgan Goldman, you know,

576
00:29:07,800 --> 00:29:11,040
Speaker 5: those are institutions that have gone through the first iteration

577
00:29:11,240 --> 00:29:15,240
Speaker 5: of the rule change when we went through the Basil

578
00:29:15,320 --> 00:29:18,480
Speaker 5: three framework and put on these new capital rules and

579
00:29:18,560 --> 00:29:21,080
Speaker 5: new liquidity rules sort of post two thousand and eight.

580
00:29:21,600 --> 00:29:24,880
Speaker 5: So we have clear evidence that they've been able to

581
00:29:24,920 --> 00:29:28,240
Speaker 5: survive and thrive under that regime. I think the super

582
00:29:28,280 --> 00:29:32,959
Speaker 5: regionals are in a different spot where regulatory rules are

583
00:29:32,960 --> 00:29:35,520
Speaker 5: getting much stricter for them, and so they sort of

584
00:29:35,560 --> 00:29:38,720
Speaker 5: have to balance and tell their investors how they're going

585
00:29:38,760 --> 00:29:41,960
Speaker 5: to deal with that. Are they going to continue lending,

586
00:29:42,360 --> 00:29:44,560
Speaker 5: are they going to pause buy back for longer?

587
00:29:44,640 --> 00:29:46,240
Speaker 4: How are they going to grow capital?

588
00:29:46,640 --> 00:29:49,400
Speaker 5: The good news is that the Bar speech is indicating

589
00:29:49,640 --> 00:29:52,239
Speaker 5: that these super regional banks do have a lot of

590
00:29:52,280 --> 00:29:55,520
Speaker 5: time before these tighter capital rules become final.

591
00:29:55,840 --> 00:29:57,720
Speaker 3: There is a question, of course, also around some of

592
00:29:57,720 --> 00:30:00,840
Speaker 3: the largest banks. Goldman Sachs in particular has been guiding

593
00:30:00,920 --> 00:30:04,360
Speaker 3: down its guidance pretty aggressively and with a break from

594
00:30:04,360 --> 00:30:07,040
Speaker 3: some of its past practices in terms of not giving

595
00:30:07,480 --> 00:30:12,280
Speaker 3: intra intra earnings guidance. This is likely to become the

596
00:30:12,320 --> 00:30:15,200
Speaker 3: worst quarter since David Solomon became the CEO. This according

597
00:30:15,240 --> 00:30:17,440
Speaker 3: to Mike Mayo over at Wells Fargo, what are you

598
00:30:17,520 --> 00:30:21,520
Speaker 3: expecting and why the negative kind of results that we're expecting.

599
00:30:22,440 --> 00:30:24,840
Speaker 5: So, Lisa, not to defer your question, I actually don't

600
00:30:24,840 --> 00:30:28,320
Speaker 5: cover Goldman Sachs, but given the vagaries of you know,

601
00:30:28,360 --> 00:30:32,520
Speaker 5: trading volatility and investment banking volatility in the quarter, you know,

602
00:30:32,760 --> 00:30:35,440
Speaker 5: a lot of the banks have been you know, giving

603
00:30:35,520 --> 00:30:38,640
Speaker 5: mid quarter updates but also saying that a lot can

604
00:30:38,720 --> 00:30:40,720
Speaker 5: change over the you know, over the next few.

605
00:30:40,560 --> 00:30:43,200
Speaker 3: Weeks going forward, What is going to be the main

606
00:30:43,200 --> 00:30:44,880
Speaker 3: pressure that you're looking for. Is it going to be

607
00:30:44,920 --> 00:30:47,720
Speaker 3: loan losses, loan loss reserves at the big banks. Is

608
00:30:47,720 --> 00:30:49,320
Speaker 3: it going to be interest margins. Is it going to

609
00:30:49,360 --> 00:30:53,560
Speaker 3: be how much the deposit beta is increasing as they

610
00:30:53,600 --> 00:30:55,000
Speaker 3: try to compete for deposits.

611
00:30:56,200 --> 00:30:57,240
Speaker 4: That's a great question.

612
00:30:57,400 --> 00:31:01,960
Speaker 5: I think that because the bank failailures put deposit costs

613
00:31:02,000 --> 00:31:05,400
Speaker 5: and deposit growth in the spotlight, it feels like that

614
00:31:05,720 --> 00:31:09,840
Speaker 5: is already priced into the stocks in terms of further pain,

615
00:31:10,200 --> 00:31:13,040
Speaker 5: and I think the CPI print gives bank stocks some

616
00:31:13,160 --> 00:31:15,920
Speaker 5: relief as we can see the light at the end

617
00:31:15,960 --> 00:31:19,160
Speaker 5: of the proverbial tunnel. In terms of FED tightening, you know,

618
00:31:19,240 --> 00:31:22,440
Speaker 5: I think the one thing and the bar speech was

619
00:31:22,600 --> 00:31:25,920
Speaker 5: pretty much down to fairway, so to speak, with regards

620
00:31:25,920 --> 00:31:30,120
Speaker 5: to what the market is expecting for further regulatory tightening.

621
00:31:30,560 --> 00:31:34,080
Speaker 5: I think the biggest, biggest hurdle for investors in terms

622
00:31:34,120 --> 00:31:38,400
Speaker 5: of you know, buying stocks, buying bank stocks here despite

623
00:31:38,400 --> 00:31:42,200
Speaker 5: the valuation, is that specter of credit. And so I

624
00:31:42,240 --> 00:31:46,160
Speaker 5: think that's really the one thing that everybody's look looking

625
00:31:46,240 --> 00:31:48,400
Speaker 5: over their shoulder and saying, is it really time to

626
00:31:48,400 --> 00:31:50,680
Speaker 5: buy bank stocks, because I don't know what's going to

627
00:31:50,720 --> 00:31:53,200
Speaker 5: happen in the economy, and maybe the last thing I

628
00:31:53,240 --> 00:31:57,560
Speaker 5: really want to do is own bank stocks into a downturn.

629
00:31:58,960 --> 00:32:01,280
Speaker 1: Erica, very quickly out of time. But what's the single

630
00:32:01,280 --> 00:32:03,480
Speaker 1: best buy right now? We're going into earning season. We're

631
00:32:03,480 --> 00:32:06,000
Speaker 1: gonna tape this, play it back on Thursday. What's the

632
00:32:06,040 --> 00:32:07,240
Speaker 1: single best buy among the.

633
00:32:07,160 --> 00:32:09,600
Speaker 9: Big banks Bank of America.

634
00:32:11,040 --> 00:32:13,840
Speaker 1: I thought, Okay, that was short and brief. Thank you

635
00:32:13,920 --> 00:32:17,040
Speaker 1: Walter having me for a sing sing.

636
00:32:18,760 --> 00:32:21,000
Speaker 8: Assumes you were up against the clock some Yeah, that's

637
00:32:21,040 --> 00:32:21,800
Speaker 8: the right thing today.

638
00:32:24,280 --> 00:32:27,000
Speaker 9: Yes, thank you, Thank you, Erica.

639
00:32:27,920 --> 00:32:31,760
Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and

640
00:32:31,880 --> 00:32:36,080
Speaker 1: anywhere else you get your podcasts. Listen live every weekday

641
00:32:36,360 --> 00:32:39,840
Speaker 1: starting at seven am Eastern on Bloomberg dot Com, the

642
00:32:39,960 --> 00:32:44,520
Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business App. You

643
00:32:44,520 --> 00:32:48,600
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644
00:32:48,600 --> 00:32:52,640
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645
00:32:52,720 --> 00:32:54,280
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646
00:33:00,040 --> 00:33:01,080
Speaker 9: Would you think